Patents = profits

By Kurt Leyendecker

Published: 2012.02.21 02:53 AM

When someone mentions intellectual property law, the things that first pop into most people's minds are inventions and patents. There is something enticing or even romantic about the notion of inventing something, patenting it and becoming wealthy capitalizing on the invention.

However, most small companies and many medium-sized companies will never pursue or hold a patent. While legal rights in trademarks and copyrights can be accrued through mere use of the underlying subject matter (even if the user is unaware), patent rights can only be obtained through the conscious act of preparing and filing a patent application and shepherding the application through a long and often involved process at the United States Patent Office. To make matters worse for patents, they are expensive. While a typical trademark and copyright can be registered for about $2000 and $400 respectively, procuring a quality utility patent can cost $9000 to $25,000.

Many business owners don't consider the improvements they make to their products and services as being "inventions." Inventions, many people believe, are products of crazy people in their garages or PhDs in the laboratory. Not true. Inventions can and are most often comprised of an improvement to a product or a process. Where these improvements offer an advantage over the unimproved predecessor, a company would be wise to at least explore patenting the improvement.

Inventions are not limited to products alone. Rather, inventions can include methods and processes as well. For example, a process for producing humus that is faster or cheaper than the known processes — even if the end result is substantially the same humus — would potentially be patentable.

Often people inquire about how much different an invention or improvement to an existing product or service must be to be patentable. Many have told me that they heard the improvement must be at least 10 percent different than the original, but that is myth with no basis in fact. How does one measure the percentage of change between two products anyhow?

The requirements to obtain a patent are simple, at least in theory. First, the invention must be useful. This is a very easy requirement to satisfy. Even items that provide for our amusement are considered useful under the law. Second, the invention must be novel (or new) meaning the invention is not publicly known. Simply, the inventors must be the first people to bring a particular innovation to the public. If they are not the first, if someone invented and exposed the invention to the public — even if many years prior and even if the extent of the exposure was limited — then the more recent inventors cannot obtain a patent on it.

Finally, the invention must not be obvious to those of ordinary skill who are knowledgeable in the field to which the invention pertains. Explaining and understanding the legal concept of legal obviousness is incredibly complex and frustrating. Typically, most of a patent attorney's effort in shepherding a patent application through the patent office in pursuit of a patent is spent arguing with a patent examiner over obviousness. Even the federal courts, which are tasked with interpreting patent laws, can't seem to come to a final conclusion concerning obviousness: They keep changing their opinion, to the great frustration of patent lawyers and their clients. Suffice it to say, an inventor or company with a potentially patentable product or process should not spend much time pondering this requirement but should seek the advice of a patent lawyer.

But why get a patent in the first place? Simply, a patent gives its owner the right to exclude others from making, selling or using the patented invention. Put another way, it gives a company a competitive advantage. A patent is a proverbial club that can be used to beat down the competition if they dare to offer products or services that tread too closely what is claimed in a patent. A patent gives its owner the ability to challenge competitors, not only in the marketplace but also in court.

There are other advantages as well. Investors love patents as patents give them a sense of security that someone else that is better-heeled financially cannot simply come into the marketplace and undermine the company in which they just invested substantial sums. Furthermore, the patent asset can be potentially sold if the company fails providing the investor with a means for recouping some of the investment. Simply, companies with patents have an easier time attracting and commanding more capital than companies that do not.

Additionally, patents often provide the holder with market advantage. The consuming public often perceives a patented product or process as being superior to unpatented alternatives. A patent can help sway a consumer to purchase one product over a more pedestrian alternative and even pay more for the patented product in doing so. And all of that often adds up to a company that enjoys watching increased profits on their bottom line.

In a widely-publicized set of perspectives released earlier this month by the Denver Metro Association of REALTORS® (DMAR), the metro area appears to have just crossed the large average price threshold of $500,000.